Adelphia adds new twist to cable TV drama

To our local cable TV scene comes a brand-new drama about a powerful U.S. business empire run by a Greek immigrant and his offspring.

Add some Enron-style financial incest, generational spats, the glamor of owning a pro sports team, coast-to-coast courtroom battles and SEC investigations. Hey, we just might be talking about a big hit.

Only this is not a TV show plot, but the turbulent tale behind Pinellas County's newest cable TV provider: Adelphia Communications, the country's sixth-largest cable company.

In March, Adelphia agreed to buy the cable system serving 59,000 subscribers in St. Petersburg and Clearwater marketed under the Americast name and owned by the giant local telephone company, Verizon Communications. The deal also includes Verizon's Americast cable system in Thousand Oaks, Calif. So ends Verizon's expensive and enthusiastic-turned-apathetic venture in the cable TV business.

Unlike most cable TV providers that operate monopoly franchises, Verizon's Americast service in St. Petersburg and Clearwater competed head-on with the 800-pound gorilla of Tampa Bay cable systems: Time Warner and its 900,000 area subscribers. The result was a textbook study in the virtues of competition over monopoly: Where the two systems competed in recent years, consumers were offered generally better service and definitely lower prices than those parts of the Tampa Bay area served by only one cable provider.

But Verizon's promise to expand its cable service in the area failed to materialize. Truth is, the promising cable system started with GTE Corp. but lost corporate backing when Bell Atlantic bought GTE and changed the company name to Verizon. Verizon trolled a "For Sale" sign on its Americast system for 18 months before Adelphia bit.

Neither company disclosed a sales price. Industry watchers value the transaction at about $1,100 per subscriber, making the price tags of the Pinellas and Thousand Oaks deals each worth about $65-million.

If Verizon's cable TV experiment is over, Adelphia's own woes are now about to be played out in Tampa Bay's back yards.

What exactly are we inheriting in Adelphia? And where is the money coming from to buy the Americast systems?

Adelphia did not return phone calls seeking comment. But here's the short version of the cable company's nasty predicament:

Adelphia, based in the north-central Pennsylvania town of Coudersport, was founded by John J. Rigas. The 77-year-old, a son of Greek immigrants, still chairs the company. His son, Tim Rigas, runs the day-to-day operations. And the company is still controlled by the Rigas family, whose assets include ownership of the National Hockey League's money-losing Buffalo Sabres. In that deal, Adelphia helped by lending the team $76.5-million.

John Rigas heads a nine-person board of directors, which includes sons Tim, James and Michael and a son-in-law. Adelphia operates from a converted church that serves as company headquarters.

In a mea culpa eerily similar to Enron's problems, Adelphia on Thursday owned up to a $1.6-billion mistake in its accounting. The impact? Adelphia is expected to restate its financial results for the past three years.

Again like Enron, Rigas-controlled partnerships have rung up $2.3-billion in off-balance-sheet debt (used to support the family's personal purchases of company stock) that Adelphia must repay if the partnerships cannot. Adelphia failed to disclose this potential exposure until March.

That's precisely what Enron rigged up: partnerships that hid Enron's debt but still left Enron ultimately responsible for paying it back. Now the Securities and Exchange Commission is investigating Adelphia.

Over the past two years, while Adelphia was losing $2.3-billion, the Rigas family collected $11.5-million in compensation. Rigas and family also created and controlled Adelphia Business Solutions, a telecommunications company that filed for bankruptcy protection March 27.

Unable to meet recent debt payments, Adelphia must confront angry lenders, Moody's and other agencies busy cutting company credit ratings to junk status, a boomlet of shareholder lawsuits, and Nasdaq threatening to delist the company if it does not soon file its delayed annual report. Nasdaq has scheduled a May 16 meeting with Adelphia.

As silly as it sounds shortly after buying Verizon's cable system here, analysts say Adelphia may have to start selling some of its cable systems to raise cash. One rumor has the company trying to sell systems with as many as 1-million of its 5.8-million subscribers.

If lenders balk in debt negotiations, all of Adelphia may end up for sale. Already, Rigas has hired three investment banks to "explore" options.

Outside the Rigas family, major shareholders such as Capital Research & Management's Gordon Crawford and former Century Communications chief Leonard Tow are pushing institutional investors and Adelphia's board to oust Rigas and let Tow run the cable company.

Adelphia's stock has dropped 85 percent (closing Friday at $6.05) from its 52-week high of $42.97, and fallen 76 percent since March 27.

As if Adelphia did not have enough problems, the company agreed Friday to pay $1-million to settle a lawsuit brought by the Equal Employment Opportunity Commission. The suit claims a Miami manager had a hangman's noose in his office and subjected black employees to daily racial harassment. The settlement puts Adelphia under government scrutiny for four years.

Compounding Adelphia's headaches, a federal court recently held up Adelphia's purchase of Verizon's Americast system in Thousand Oaks. Adelphia was Verizon's only cable competitor in that market, which means the California deal will again make Adelphia a monopoly provider. The California city and county are mostly interested in keeping Adelphia from jacking up cable rates.